Private label and strong brands can co-exist: Heinz
Heinz has reaffirmed its profit expectations as they continue to focus on the Five C’s – Consumers, Costs, Commodities, Cash and Currency – to boost performance.
“We remain confident in the strategies that have produced industry-leading top and bottom-line results over the past three years,” Heinz CEO William Johnson told analysts at the CAGNY conference in Florida this week.
The company had outlined four strategies – grow the core portfolio, accelerate growth in emerging markets, leverage global scale, and make talent an advantage – that will help guide a strong performance in the years ahead.
Mr Johnson noted that the consumer trend toward eating at home more often was merging with a change in purchasing habits. “Consumers are not only eating in more often, they are becoming increasingly more particular and sophisticated shoppers,” he advised. “The weekly trip to the supermarket is now accompanied with grocery lists and coupons or replaced altogether with multiple trips in different channels geared specifically to cost-effectively optimising the family’s day-to-day menu.”
In response to greater financial pressures more consumers had turned to private label but Heinz is confident that private label and national brands can both continue to prosper in coming years. “Private label and strong brands can indeed co-exist. Private label needs strong brands to innovate and bring news and excitement to consumers,” Mr Johnson explained. “We understand our role in driving traffic in our categories, while our retail customers strategically use store brands to accommodate a discount-oriented subset of consumers. These economic times will clearly test consumer goods companies; but research confirms that consumers still prefer leading brands in most categories.”
“Going forward, our innovation will be focused more on well-tested ideas, as well as breakthrough ideas like Ore-Ida Steam n’ Mash. Now is the time to emphasise core products and categories, and avoid experimentation,” he suggested.
Emerging markets are a key in the long-term plans for Heinz, Mr Johnson advised, but they are far from reaching their full potential. “Emerging markets remain among the most significant long-term growth opportunities for Heinz,” he said. “We have built capable manufacturing, distribution and sales infrastructures, that have given us a significant leg up in these markets, but we still have only scratched the surface of their potential. Heinz’s emerging markets have generated excellent returns over the last several years and they now contribute an increasing share of both sales and profits. We expect that trend to accelerate in the coming years.”
Mr Johnson said that cost efficiency would be a key for successful food manufacturers and is anticipates commodity price pressure to continue to subside.
“Reducing costs to drive margins will become increasingly important going forward as we anticipate an industry-wide slow down in price-driven top-line growth,” he commented. “Despite a general decline in commodity inflation, some key inputs remain above historic levels and we are still working through hedged positions. We do see some improvement coming.
“The majority of our pricing to offset commodity inflation has been implemented,” he added.
The company will not provide guidance for Fiscal 2010 at this stage due to difficulties in forecasting the future economic environment. “The current global economic environment, particularly as it pertains to currency and commodities, remains too volatile and unpredictable to make reliable forecasts this far in advance. What I can say at this point is that we expect positive top and bottom-line growth on a constant currency basis,” Mr Johnson concluded.
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